Data & Research August 6, 2015

ICI Savings Snapshot Shows Individual Commitment

Large data set reveals U.S. workers are engaged in their DC plans and are taking their individual responsibility for saving seriously.
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A snapshot of the savings behavior of some 26 million U.S. retirement plan participants clearly shows Americans’ continuing commitment to saving for retirement, according to the Investment Company Institute (ICI).

A new study from ICI, “Defined Contribution Plan Participants’ Activities, First Quarter 2015,” includes data from January through March 2015 and is based on actual defined contribution (DC) plan recordkeeper data. ICI says the study demonstrates that participants are continuing to save at a steady pace in DC plans provided by their employer during the quarter.

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The data set shows just one in 100 participants stopped contributing in the first quarter of 2015, the same pace as in the first quarter of 2014. Even better, participants generally did not tap into their accounts—as DC plan withdrawals in the first quarter of 2015 remained low and were in line with the prior year’s first quarter activity.

“Only 1.3% of DC plan participants took withdrawals in the first quarter of 2015,” ICI notes, also the same share as in the first quarter of 2014. “Only 0.4% took hardship withdrawals during the first quarter of 2015, compared with 0.5% during the first quarter of 2014.”

NEXT: Loan activity looks positive

ICI finds DC account loan activity edged down in the first quarter of 2015, “following a seasonal pattern observed over the past several years.” As ICI explains, the first quarter of the year tends to have lower percentages of DC plan participants with loans outstanding compared with later quarters. “The data show that at the end of March 2015, 17.4% of DC plan participants had loans outstanding,” ICI explains, “compared with 17.9% at year-end 2014.”

Another positive development in the quarter had to do with participant behaviors: ICI observes stock values “edged up” during the first three months of the year, but most DC plan participants stayed the course in their asset allocations—considering long-term goals ahead of short term market moves.  

Although some allocation readjustment is healthy, of course, the study notes 4.3% of DC plan participants changed the asset allocation of their account balances between January and March. Another 4.2% changed the asset allocation of their contributions. ICI says these levels of reallocation activity are in line with the activity observed in the same time frame a year earlier. 

Additional findings from the first-quarter report are available here.

Products August 6, 2015

Introducing a 'Frugal' 3(38) Advisory Services

Small-plan clients can now receive fiduciary investment advice at a “frugal” price, says Frugal Financial Retirement Plan Services.
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Small defined contribution (DC) plan clients of Employee Fiduciary have a new option when they want investment help. The company now offers a 3(38) investment advisory service through its new subsidiary, Frugal Financial Retirement Plan Services LLC.

According to company’s president, Eric Droblyen, Frugal Financial is a logical extension of the custody, recordkeeping and third-party administration (TPA) services Employee Fiduciary already offers. He says the company’s 401(k), 403(b) and tax-exempt government plan clients may also receive help with investment policy statement (IPS) preparation; selection, monitoring and benchmarking of plan investments; qualified default investment alternative (QDIA) selection; preparation of investment-related notices required under the Employee Retirement Income Security Act (ERISA); and ERISA 404(c) compliance. 

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Included in the 3(38) offering is a fiduciary checklist to assess the satisfaction of fiduciary responsibilities. “What we’re trying to do is have a soup-to-nuts outsourced 401(k) service,” Droblyen tells PLANADVISER.

Adding the Frugal Financial service costs 0.10% of assets annually, subject to a $1,000 minimum. According to the firm, a client with a $1 million 401(k) plan could pay less than 0.50% of plan assets (50 basis points bps) a year in combined costs for recordkeeping, custody, third-party administration, fiduciary investment advice and investment expenses. 

Limiting the choice of funds to a suite of Vanguard investment options lends to the frugality, Droblyen explains. “Quarterly monitoring and the IPS will be the same. That’s low-cost for us and highly compliant from an ERISA perspective.”

He points to a BrightScope scatter chart, showing total retirement plan advisory service expenses. “That 50 basis points compares well with plans in the millions of dollars,” he says.

Still, he says, “The service is not for everybody.” The staff of 100 employee registered investment advisers (RIAs) only serves plans, for instance. One-on-one advice must be arranged through contacting a local adviser; a directory is provided on the company’s website.

“We get a lot of plan sponsors that come to us directly, and a lot that don’t have an adviser and don’t know where to start looking for one,” he says. They either want to reduce their costs or are unsure of their fiduciary responsibilities. “We come at this from an ERISA technical perspective,” he says. “We’re ERISA-compliant specialists.”

 Further information about Frugal Fiduciary can be found here.

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